[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:09.25,0:00:13.37,Default,,0000,0000,0000,,- In the next several videos, we'll dive\Ndeeper into price ceilings and also price
Dialogue: 0,0:00:13.55,0:00:18.89,Default,,0000,0000,0000,,floors. These are important for two\Nreasons. First, governments around the
Dialogue: 0,0:00:19.07,0:00:23.22,Default,,0000,0000,0000,,world both today and historically often do\Nimpose price ceilings and floors.
Dialogue: 0,0:00:23.22,0:00:25.47,Default,,0000,0000,0000,,So we want to understand their effects.
Dialogue: 0,0:00:25.47,0:00:32.11,Default,,0000,0000,0000,,Second, in the last section we explained\Nhow a price is a signal wrapped up in an
Dialogue: 0,0:00:32.29,0:00:37.30,Default,,0000,0000,0000,,incentive. In this section, we'll be\Nexplaining what happens when that signal,
Dialogue: 0,0:00:37.48,0:00:42.10,Default,,0000,0000,0000,,that price, is not allowed to do its work.\NWhen the price is not allowed to rise or
Dialogue: 0,0:00:42.28,0:00:44.98,Default,,0000,0000,0000,,fall, what happens when that signal\Nis not sent?
Dialogue: 0,0:00:44.98,0:00:47.99,Default,,0000,0000,0000,,What happens when that\Nincentive is taken away?
Dialogue: 0,0:00:52.83,0:00:58.28,Default,,0000,0000,0000,,A price ceiling is a maximum price allowed\Nby law. So, for example, if the price
Dialogue: 0,0:00:58.46,0:01:04.55,Default,,0000,0000,0000,,ceiling on gasoline is $2.50, it is\Nillegal to buy or sell the gasoline at
Dialogue: 0,0:01:04.73,0:01:10.50,Default,,0000,0000,0000,,above that price. It's called a ceiling\Nbecause you cannot go above the ceiling.
Dialogue: 0,0:01:10.68,0:01:16.79,Default,,0000,0000,0000,,So a ceiling is a maximum price. It has\Nfive important effects. It's going to
Dialogue: 0,0:01:16.97,0:01:23.52,Default,,0000,0000,0000,,create shortages, reductions in product\Nquality, wasteful lines and other search
Dialogue: 0,0:01:23.70,0:01:27.45,Default,,0000,0000,0000,,costs, a loss in gains from trade\Nor a dead weight loss
Dialogue: 0,0:01:27.45,0:01:31.13,Default,,0000,0000,0000,,and a misallocation of resources.
Dialogue: 0,0:01:31.33,0:01:35.76,Default,,0000,0000,0000,,We're going to go through each of these,\Nlet's begin with shortages. We can easily
Dialogue: 0,0:01:35.94,0:01:39.66,Default,,0000,0000,0000,,show that price ceilings create shortages\Nusing our standard demand and supply
Dialogue: 0,0:01:39.84,0:01:44.35,Default,,0000,0000,0000,,framework. We'll use the price of gasoline\Nas an example because governments often
Dialogue: 0,0:01:44.53,0:01:48.01,Default,,0000,0000,0000,,have imposed a maximum price on gasoline.
Dialogue: 0,0:01:48.19,0:01:52.75,Default,,0000,0000,0000,,Now, ordinarily, we would know that the\Nmarket equilibrium will be found where the
Dialogue: 0,0:01:52.93,0:01:57.31,Default,,0000,0000,0000,,quantity demanded is equal to the quantity\Nsupplied. But suppose that the government
Dialogue: 0,0:01:57.49,0:02:02.53,Default,,0000,0000,0000,,imposes a maximum price which is below the\Nmarket equilibrium. So, this is a
Dialogue: 0,0:02:02.71,0:02:06.42,Default,,0000,0000,0000,,controlled price, a maximum\Nprice above which it is
Dialogue: 0,0:02:06.42,0:02:08.72,Default,,0000,0000,0000,,illegal to buy or sell this good.
Dialogue: 0,0:02:08.72,0:02:15.14,Default,,0000,0000,0000,,What we want to do now is simply read off\Nthe diagram what happens. So at the
Dialogue: 0,0:02:15.32,0:02:19.64,Default,,0000,0000,0000,,controlled price we can read that the\Nquantity demanded given by the demand
Dialogue: 0,0:02:19.82,0:02:25.10,Default,,0000,0000,0000,,curve is here. At the controlled price,\Nthe quantity supplied is given by the
Dialogue: 0,0:02:25.28,0:02:30.00,Default,,0000,0000,0000,,supply curve and is read here. Notice that\Nat the controlled price, the quantity
Dialogue: 0,0:02:30.18,0:02:34.05,Default,,0000,0000,0000,,demanded exceeds the quantity\Nsupplied and that's the shortage.
Dialogue: 0,0:02:34.94,0:02:40.07,Default,,0000,0000,0000,,Now, ordinarily, if the quantity demanded\Nexceeded the quantity supplied, buyers
Dialogue: 0,0:02:40.25,0:02:46.13,Default,,0000,0000,0000,,want more of this good than they're able\Nto get at the current price. Ordinarily,
Dialogue: 0,0:02:46.31,0:02:51.09,Default,,0000,0000,0000,,the buyers would compete to push the price\Nup and the price would increase to the
Dialogue: 0,0:02:51.27,0:02:53.88,Default,,0000,0000,0000,,market price and we would get the\Nusual equilibrium.
Dialogue: 0,0:02:54.48,0:02:59.22,Default,,0000,0000,0000,,In this case, however, it's illegal to\Npush the price up. So as a result, the
Dialogue: 0,0:02:59.40,0:03:04.21,Default,,0000,0000,0000,,quantity demanded exceeds the quantity\Nsupplied and we get the shortage which
Dialogue: 0,0:03:04.39,0:03:09.90,Default,,0000,0000,0000,,doesn't go away. The shortage is defined\Nsimply as the amount by which the quantity
Dialogue: 0,0:03:10.08,0:03:14.41,Default,,0000,0000,0000,,demanded exceeds the quantity\Nsupplied at the controlled priced.
Dialogue: 0,0:03:15.41,0:03:19.62,Default,,0000,0000,0000,,Let's give some examples. When goods are\Nin shortage, that is when the quantity
Dialogue: 0,0:03:19.80,0:03:25.49,Default,,0000,0000,0000,,demanded exceeds the quantity supplied,\Nsellers have more customers than goods.
Dialogue: 0,0:03:25.67,0:03:30.05,Default,,0000,0000,0000,,Usually, sellers have to compete to get\Ncustomers but when goods are in shortage,
Dialogue: 0,0:03:30.23,0:03:35.47,Default,,0000,0000,0000,,sellers have more customers than they\Nneed. As a result, then we have
Dialogue: 0,0:03:35.65,0:03:41.64,Default,,0000,0000,0000,,shortages, the sellers can cut quality,\Ncut their costs and still sell everything
Dialogue: 0,0:03:41.82,0:03:44.48,Default,,0000,0000,0000,,they want to sell at the controlled price.
Dialogue: 0,0:03:44.89,0:03:50.15,Default,,0000,0000,0000,,As a result, price controls reduce\Nquality. We saw this in the 1970s, books
Dialogue: 0,0:03:50.33,0:03:55.14,Default,,0000,0000,0000,,were printed on lower quality paper\Ntwo-by-four lumber shrank to one and
Dialogue: 0,0:03:55.32,0:03:59.33,Default,,0000,0000,0000,,five-eights by three and five-eights.\NAutomobiles were given fewer coats of
Dialogue: 0,0:03:59.51,0:04:05.23,Default,,0000,0000,0000,,paint. Throughout the US economy quality\Nbegan to fall. Here's another example, the
Dialogue: 0,0:04:05.41,0:04:09.60,Default,,0000,0000,0000,,great Matzo Ball Debate.\NIn 1972 union leader, George Meany
Dialogue: 0,0:04:09.60,0:04:14.21,Default,,0000,0000,0000,,complained that his favorite soup, Mrs.\NAdler's had shrunk from four to three
Dialogue: 0,0:04:14.39,0:04:18.47,Default,,0000,0000,0000,,matzo balls. So serious was this that the\NChairman of the Wage and Price Commission
Dialogue: 0,0:04:18.65,0:04:23.37,Default,,0000,0000,0000,,had his staff buy up a bunch of cans of\NMrs. Adler's Soup, and count in each one
Dialogue: 0,0:04:23.55,0:04:27.62,Default,,0000,0000,0000,,of them how many matzo balls were in the\Nsoup. He said they were still four.
Dialogue: 0,0:04:27.80,0:04:31.31,Default,,0000,0000,0000,,Whoever was right, however, the lesson is\Nquite correct.
Dialogue: 0,0:04:31.31,0:04:34.03,Default,,0000,0000,0000,,Price controls reduce quality.
Dialogue: 0,0:04:34.03,0:04:38.76,Default,,0000,0000,0000,,When the quantity demanded exceeds the\Nquantity supplied, when there's a surplus
Dialogue: 0,0:04:38.94,0:04:43.47,Default,,0000,0000,0000,,of buyers, sellers have less of an\Nincentive to give good service.
Dialogue: 0,0:04:43.63,0:04:48.57,Default,,0000,0000,0000,,Another way to reduce quality is to reduce\Nservice. And indeed, full-service gasoline
Dialogue: 0,0:04:48.75,0:04:53.12,Default,,0000,0000,0000,,stations disappeared in 1973. The owners\Nwould simply close up shop whenever they
Dialogue: 0,0:04:53.30,0:04:54.88,Default,,0000,0000,0000,,wanted to take a break.
Dialogue: 0,0:04:54.88,0:04:59.62,Default,,0000,0000,0000,,More generally there's a reason why the\Nbaristas at Starbucks are pleasant to us,
Dialogue: 0,0:04:59.62,0:05:05.33,Default,,0000,0000,0000,,it's because they want more customers.\NCustomers are profitable, but when you
Dialogue: 0,0:05:05.51,0:05:09.75,Default,,0000,0000,0000,,can't raise the price, when there's a\Nshortage, when a seller has more customers
Dialogue: 0,0:05:09.93,0:05:14.05,Default,,0000,0000,0000,,than they need, it doesn't pay to be\Npleasant to customers. Indeed, it may pay
Dialogue: 0,0:05:14.23,0:05:18.53,Default,,0000,0000,0000,,to be unpleasant to drive some of them\Noff, so you don't have to serve them.
Dialogue: 0,0:05:18.71,0:05:24.23,Default,,0000,0000,0000,,This is another reason why the workers at\Nthe DMV are on average probably a little
Dialogue: 0,0:05:24.41,0:05:28.85,Default,,0000,0000,0000,,bit less pleasant to us than at stores\Nwhich require our service, than the store
Dialogue: 0,0:05:29.03,0:05:34.68,Default,,0000,0000,0000,,which want us to come into the store. This\Nis a reason why in communist countries
Dialogue: 0,0:05:34.86,0:05:39.92,Default,,0000,0000,0000,,like the ex-Soviet Union, the workers at\Nthe stores were much more unpleasant than
Dialogue: 0,0:05:40.10,0:05:44.44,Default,,0000,0000,0000,,workers in McDonald's are because\NMcDonald's has an incentive to get more
Dialogue: 0,0:05:44.62,0:05:48.93,Default,,0000,0000,0000,,customers. They want to create a pleasant\Nexperience. They want to make it easy to
Dialogue: 0,0:05:49.11,0:05:54.79,Default,,0000,0000,0000,,buy goods from the store. But when there's\Nshortages, when there are more customers
Dialogue: 0,0:05:54.97,0:05:58.47,Default,,0000,0000,0000,,than you need, it no longer\Npays to be pleasant.
Dialogue: 0,0:05:58.65,0:06:01.52,Default,,0000,0000,0000,,Okay, price ceilings, let's remember five\Nimportant effects.
Dialogue: 0,0:06:01.52,0:06:04.33,Default,,0000,0000,0000,,Shortages and reductions in\Nproduct quality.
Dialogue: 0,0:06:04.33,0:06:08.39,Default,,0000,0000,0000,,That's what we covered today. Next we will\Nbe covering wasteful lines and other search
Dialogue: 0,0:06:08.57,0:06:12.54,Default,,0000,0000,0000,,costs, a loss in gains and trade and a\Nmisallocation of resources.
Dialogue: 0,0:06:13.45,0:06:18.51,Default,,0000,0000,0000,,If you want to test yourself, click\Npractice questions or if you're ready to
Dialogue: 0,0:06:18.69,0:06:20.98,Default,,0000,0000,0000,,move on, just click next video.